Could American consumers come out of this crisis with a little help from Washington? The Obama administration is pushing a new consumer protection agency to regulate the bankers, and the bankers are going to do their best to kill it.
This agency would focus solely on the consumer and the proposed legislation would give it the power to set standards for traditional mortgages and could prohibit mortgage products with hidden fees and prepayment penalties.

The banking industry, whose idea of innovation often revolves around highly profitable products that are dangerous for consumers and get them deeper in debt, sees the danger.

In the Wall Street Journal, a law professor, Todd Zywicki, argues that borrowers should be treated like adults and banks should be free to provide innovative products. Adjustable rate mortgages have been common in Europe and the 30-year fixed should not be the only choice, he says. True enough, but there is plenty of room for choice without offering mortgages like some recent products with a 2.5% teaser rate that then jumps to 10%. That has no advantage to borrowers and is just a tool for fast-talking salesmen to make big commissions while endangering borrowers.

“A new agency premised on the erroneous belief what consumers need is to be protected from themselves is likely to do more harm than good,” he concludes.

Wrong. They need to be protected from banks and mortgage brokers. I am waiting for some economist skilled at dreaming up wild statistics to estimate how much it costs for individuals to run their own retirement programs – research, investing, commissions, hidden marketing fees, opportunity costs, not to mention the huge costs of a financial services industry – compared to a pension provided by a company or government.

Filed under: Credit Crunch, Technology